Baidu's bet on Beijing's autonomous car drive

The search company's calculation: give up some intellectual property for sales

MICHAEL DUNNE, Contributing writer

China's biggest online search group, Baidu, took the global car industry by surprise in April when it announced it is making its autonomous vehicle technology freely available to anyone who wants it.

In the world's largest vehicle market, conventional manufacturers and tech companies are battling for pole position in the country's nascent self-driving industry. Domestic and foreign business, from Tencent and Tesla to Fiat Chrysler and Google, are rapidly making (and in some cases breaking) partnerships. So Baidu is trying a different tack: surrender some intellectual property in the short-term to capture longer-term sales.

Baidu previously teamed up with Chinese car manufacturers such as Chery and Germany's BMW. But its autonomous technology remains a few laps behind that of global leaders such as Google, Tesla, Israel's Mobileye -- the Intel-owned specialist in driver-assistance systems -- and Delphi, the former General Motors subsidiary.

With central government officials in China increasingly turning to vibrant homegrown internet leaders such as Baidu, Alibaba and Tencent to inject innovation into an industry dominated by lumbering state groups, the search company is likely to focus on cultivating partnerships with the likes of Beijing Auto Industry Corporation (Baic) and Changan Automotive that already produce millions of cars a year.

"Typically, companies open-source a basic platform in order to quickly add new features that are contributed by the community," said Evangelos Simoudis, author of "The Big Data Opportunity in Our Driverless Future." "Once this happens, the platform is adopted more quickly and broadly," he said.

Inside track

Baidu has three powerful factors working in its favor. The most important is China's protected vehicle market. By 2025, China's annual new vehicle sales are expected to surpass 35 million a year, according to the Ministry of Industry and Information Technology, and 15% will by then be equipped with "highly advanced" autonomous capabilities.

In an open market, Baidu would have a tough time beating Google and Delphi, which have a three- to five-year lead in developing self-driving technologies. But this is not an open market. Mapping, for example, is a crucial piece of the puzzle. Citing national security concerns, Beijing issues mapping licenses only to Chinese businesses and Baidu is already one of the most advanced. Some foreign companies, such as Germany's Here, are entering the market as minority shareholders but ultimate control still resides with the Chinese.

The second factor in Baidu's favor is the fact that Chinese automakers need help. In terms of manufacturing quality, companies such as Guangzhou Automotive and Shanghai Automotive are catching up with global rivals. But they are also-rans in the autonomous technology race. In China, cooperation between conventional manufacturers and advanced tech companies such as Baidu makes sense. In the U.S., by contrast, Ford and GM are battling tech companies such as Google for supremacy.

Collaboration is already under way. Beijing Automotive featured a new model equipped with Baidu's autonomous drive capabilities at April's Shanghai auto show.

Third, China's driving culture is different from that of the U.S. and Europe. Consumers see a car primarily as a status symbol, and then as a functional commuting tool. Attributes such as swift acceleration and tight handling are less relevant. Those who can afford it hire drivers to deal with the congested roads. Others turn to ride-hailing services such as Didi Chuxing, China's leading operator.

Given this, it is little surprise that Chinese consumers appear more ready to embrace autonomous vehicles. Three quarters of Chinese have a strongly favorable attitude toward autonomous vehicles, according to a 2015 survey by the Boston Consulting Group, compared with just 52% in America and 36% in Japan.

The promise of autonomous cars leading to safer roads may play a role in shaping public and official opinion, too, in a country where 260,000 people die in traffic accidents each year, according to the World Health Organization.

It is true that rivals such as Google, Uber and the alliance of Intel, Mobileye and Delphi are already testing autonomous vehicles on U.S. roads. And in Japan, car companies and the government are working together to create the world's most advanced autonomous vehicle infrastructure; streetlights, highway lanes, and car radars and sensors will work in concert to create smoother traffic flows and prevent accidents.

And Baidu does not have the road to itself. Didi Chuxing is positioning itself as a more serious rival to Baidu, reportedly raising nearly $6 billion to invest in self-driving and opening a California self-driving lab in March.

But the field of foreign rivals with access to the Chinese market is narrow. Unlike Baidu, which is testing in California and at its Beijing headquarters, none has solid access to the Chinese market. Google had its operating license revoked more than 10 years ago. And previously unstoppable Uber capitulated in 2016 when it agreed to be absorbed by Didi Chuxing.

All of which reminds us that, to Baidu's advantage, superior technology alone is no guarantee of market success in the People's Republic.

Michael J. Dunne is the author of "American Wheels, Chinese Roads." His company, Dunne Automotive Ltd, advises companies on auto tech investments between the U.S. and China.